Two Cheers for Capitalism

Since the 2008 financial crisis bashing banks, bankers and free enterprise has become de rigeur. A current exhibit at the British Museum tells "stories of mismanagement, speculative frenzy, fraud and failure" in Britain from 1700 to present day. The message is ubiquitous. The captains of finance and industry have betrayed us. Free enterprise is failing.

Long before the infamous "greed is good" Gordon Gekko from the 1987 film Wall Street, Hollywood had been churning out sinister corporate villains for decades. The idea of the greedy, exploitative capitalist-obsessing over money, bereft of empathy for his fellow human beings, became embedded in popular culture in the 19th Century. Think Dickens's Scrooge.

I think it's dangerous stuff, these caricatures. Capitalism is indeed in crisis today. We need a way forward. This requires that our gleeful bashers take a breath and back off. For this to happen, free marketeers need to step up.

I believe our biggest problem is a crisis of confidence and a collapse of values. Therefore I propose, before anything else, we endeavour to get agreement around three very basic points:

First, free enterprise works. Socialism and every form of collectivism known to humankind have failed. Even members of the Chinese politburo get this. Tens of millions of people across China have been lifted out of poverty as a result. It's not clever Communism that's doing the trick. Let's fix our capitalism, wisely. Let's be careful that any cure is not worse than the disease.

Second, free enterprise works best when the underlying values are sound. The fact is, certain virtues are timeless. This includes things like patience, savings, and self-reliance. We all have responsibility. At some point, we started to lose our way.

Third, for capitalism to survive, capitalists must show restraint. While most leaders in business and banking have acquitted themselves well these last years, some have not. The behaviour of bad capitalists undermines confidence in the free enterprise system. It damages social cohesion.

Take income inequality. It's unavoidable.

With an important caveat. In his book A Capitalism for the People. Italian economist Luigi Zingales argues that the "public generally accepts this inequality as long as it is not excessive, is seen as part of the system that benefits everyone, and, most importantly, is justified by a principle that a large fraction of the population considers "fair."

Investor Warren Buffett says he favours raising taxes on the rich in the US as a way of boosting the morale of the middle class. It seems that Buffett would agree with Zingales. Buffett gets the zeitgeist. He understands that something is out of sync.

I'm taken by another book, Two Cheers for Capitalism, a volume of short essays published 35 years ago by the American intellectual and editor Irving Kristol. Why two cheers for Kristol, instead of three?

For one thing, Kristol, a former Trotskyist turned capitalist, had come to reject absolutism of any kind. While he heaped scorn on anti-capitalists, Kristol had no time for free market utopians either. He had become a staunch advocate of free enterprise. He also rejected crude oversimplification that can easily lead to dogma and zealotry.

In reference to the oil shocks of the 1970s, when ordinary Americans felt seriously stretched and stressed, Kristol asked whether, when all "those lovely fourth-quarter profits began to roll in," oil companies might have been wise to consider forgoing their increase in executives' salaries.

Which is another way of saying, capitalism can't work when we run big deficits in decency and common sense.